Providence Council Considering Overhauling Pension System
Wednesday, February 08, 2012
More school closures, fire station closures, the inability to make payroll and ultimately, bankruptcy, are looming if the city cannot address its massive unfunded pension liability, former Auditor General Ernest Almonte said Tuesday.
Almonte delivered the stark warning to members of the Providence City Council Subcommittee on Pension Sustainability, the group tasked with making recommendations to the rest of the Council on how to reform the city’s pension system.
The meeting was the first in a series of hearings where the subcommittee will receive testimony on municipal pension reform.
“What I’m about to tell you doesn’t feel good, taste good or smell good,” Almonte said before breaking down information about the city’s financial struggles as well as a municipal pension report issued last fall.
$901 Million Unfunded Liability
The June 30, 2011 actuarial valuation of the Providence Employees Retirement System conducted by Buck Consultants showed an unfunded liability of $901 million. The same valuation estimates the Fiscal Year 2012 annual required contribution to be $64.8 million, which is a year over year increase of $ 5.9 million In addition, the city is staring down a nearly $1.5 billion unfunded liability for Other Post-Employment Benefits (OPEB), of which it has just $1 million set aside for.
“The numbers are all big and they’re all bad,” Almonte said.
Almonte said a lack of actions will have a ripple effect and the consequences will be dire. He noted that Providence is one of four communities where more than 40 percent of the entire tax levy is going toward paying for pensions and health benefits for retirees. The others include Central Falls, Woonsocket and Johnston.
“It’s bad company to be in,” Almonte said.
System is Unsustainable
The subcommittee has already approved two ordinances which would 1) Change the definition of “final compensation” for purposes of calculating retirees’ benefits so the benefits would be based on the highest five consecutive years of compensation within the last ten years of service rather than the highest three years; and 2) Require employees with 25 years or more of service to continue to contribute to the pension system for the length of their employment.
But the city is still waiting for the General Assembly to grant it the tools to make substantial changes to the pension system, most notably through the suspension of cost-of-living-adjustments (COLAs). Last year state lawmakers allowed the city to move retirees over the age of 65 to Medicare, but a judge ruled that retirees are entitled to lifetime benefits from the city last week.
Salvatore said the Council is committed to reforming the current system.
“The current pension system is unsustainable; moreover, maintaining the current pension system without making fundamental changes will significantly affect residents’ quality of life,” he said “The system demands more and more money from taxpayers every year, which results in the crowding out of resources for crucial city services. There are no easy solutions, but the subcommittee is committed to taking the required actions to make Providence’s pension system sustainable once again.”
Recipe for Disaster
Almonte warned the Council not to sit idle when it comes to pensions.
“The status quo does not work. It’s a recipe for disaster,” he said.
“You’ll basically run out of cash and you will be a bankrupt city.”
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Comments:
Jim Okolowitcz
9:06am on Wednesday, February 08, 2012
I agree whole heartedly with Ernest Almonte on the dire need for the restructure of the pension system. But when the city only brings in 48% of taxable income there is the big reason why 40% of the tax levy goes to pensions. The city needs to bring in more revenue through taxes, but when you allow Brown University, Johnson and Wales, and R.I.S.D. to continue to buy up the city and take properties off of the tax brackets this is what you get. Also how many tax breaks have been given out to companies so that they will bring their businesses to the city??? When only the home owner and the small business guy are the only one paying the cities bills this is what you get.
Just imagine the day when the city actually takes in 75% to 80% in tax revenue !!!!!
fair play
10:24am on Wednesday, February 08, 2012
They should stop paying overtime. Just the fire department overtime will be $13 to $14 million this year alone. That means ever firefighter will collect in just overtime, what more residence make at their regular pay. Should we be paying $90,000 to $100,000 a year for firefighters. The call out sick to generate pay increases for each other.
Jim Okolowitcz
10:43am on Wednesday, February 08, 2012
The fire department needs to hire to bring down the overtime. The job is understaffed by approximately 70 personnel, which is almost 1 shift. If you read the article about North Providence Fire about a week ago. The mayor there who hates the fire department stated that due to the hiring to bring up the staffing, their overtime budget was brought down considerably.
Also you may want to check with the Commissioner of Public Safety who also states that they need to hire.
Mike Govern
1:19pm on Wednesday, February 08, 2012
Privatize the FD. Take a look at the highest pensions in Providence and then look at the disability numbers. The firefighters spend more time working the system than fighting fires...
Odd Job
4:06pm on Wednesday, February 08, 2012
Put them on salary instead of hourly. The thieves wouldn't be able to milk it then.
John Tavares
6:30pm on Wednesday, February 08, 2012
Why don't they have Almonte do a forensic audit of the providence pension fund to find out where all the money contributed has gone. Who were the past/present Mayor's giving investment rights to the money too? How much is currently in the fund ... probably well over $300 million and more than enough to pay pensions for quite a while. The unfunded estimates are what the City failed to put into the fund over the years, and the losses suffered by the fund due to the people the City was having invest the money. The City has a whole office of paid lawyers working at the Solicitor's office, but the Mayor needs to hire Flander's firm while crying the City is broke. If you believe anything that comes out of their mouths, your are more an idiot then the Mayor is. He puts into his budget things that he knows, being a lawyer, are illegal and will lose in Court . then he cries that he needs this money to prevent going broke ----- he's obviously as bad a lawyer as he is a Moyor !!!!